Getting Started: Young Americans average on personal finance knowledge

Carolyn Bigda, Chicago Tribune

5:34 AM, Aug 12, 2014

7:03 AM, Aug 12, 2014

Joe Raedle

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When it comes to personal finance, a new survey shows high school students in the U.S. may not have the knowledge they need to manage money.

The survey was part of the Programme for International Student Assessment, a test conducted every three years that measures the abilities of 15-year-olds around the world in core subjects, such as mathematics, reading and science.

In the latest survey, financial literacy questions were included for the first time, and the results were published this month.

The takeaway: U.S. students scored about average compared with their peers in 17 other countries and economies, which included Australia, France, New Zealand, Russia and Shanghai.

Financial literacy experts found the results to be less than ideal.

"The U.S. is in the middle, but for a country with the most developed financial market, average might not be a good standard," said Annamaria Lusardi, chair of the expert group that designed the financial literacy portion of PISA and a professor of economics and accountancy at the George Washington University School of Business.

Across all countries, only about 10 percent of 15-year-olds could correctly answer the most difficult money-related questions on the test. Another 15 percent of students scored at the lowest level or below.

The questions ranged in difficulty from Level 1 to Level 5, with Level 5 being the most challenging.

For example, in Level 5, students had to compare two loans — one for $8,000 with an interest rate of 15 percent, and another loan for $10,000 with an interest rate of 13 percent — and explain the benefits of choosing the latter option. (Correct answer: The interest rate is lower and more money is available.)

Easier questions asked students to identify the purpose of say, an invoice.

It may come as no surprise that a question about loans would befuddle teens. A 15-year-old likely has little or no experience with borrowing money.

But many of these students will soon have to make crucial financial decisions, including whether to continue their education beyond high school and how they will pay for their studies.

Also, Lusardi argues that PISA is designed to test a student's ability to apply knowledge. So, in the above example, if a teenager knew that lower-cost debt is better, he may have been able to guess at the correct answer.

Shanghai had the highest score on the PISA test, followed by the Flemish Community of Belgium, which is roughly the northern half of Belgium, and Estonia. Australia and New Zealand were also top performers. Both countries have launched national financial literacy campaigns in recent years.

The United States, meanwhile, came in ninth out of 18 countries, just behind Latvia and only slightly better than Russia and France.

In the U.S., consumers can go to mymoney.gov for tips on managing money and for links to other online resources. Some states, such as Missouri and Virginia, require students to study personal finance before graduating high school.

Many believe more should be done to educate young adults on money matters.

Said John Pelletier, of the Center for Financial Literacy at Champlain College in Burlington, Vt.: "You have a country (Russia) that until the early 1990s wasn't even capitalist in nature, and they did basically as well as we did."